[Click eStock] "HanaTour, Profit Improvement Slower Than Sales Recovery... Target Price Down"

[Asia Economy Reporter Lee Myunghwan] Hyundai Motor Securities announced on the 9th that it maintains a 'Market Perform' (neutral) investment rating on Hana Tour and has lowered the target price from the previous 73,263 KRW to 57,000 KRW. This is due to the slow reduction of losses compared to the recovery trend in travel demand.

Hana Tour's consolidated sales for the third quarter of this year increased by 225.3% year-on-year to 37.4 billion KRW, but operating losses continued at 21.8 billion KRW during the same period. While the external growth trend met expectations, Hyundai Motor Securities diagnosed that the loss scale exceeded the initial forecast by 15%, indicating underperformance.

Sales surged more than threefold year-on-year, as the number of departures in the third quarter recovered to 2 million, a 461% increase compared to the same period last year, and the number of package tour customers increased 121 times to 65,000 during the same period. However, operating losses were significantly higher than initially expected despite efforts to improve cost efficiency. Hyundai Motor Securities assessed that if the current trend continues, a performance turnaround would only be possible in the third quarter of next year, when quarterly sales exceed 100 billion KRW.

Hyundai Motor Securities explained that the average monthly number of departures in the third quarter recovered to 30% of the pre-COVID-19 pandemic level. The total number of departures in the third quarter was 2 million, with a monthly average of 665,000. For the fourth quarter, Hyundai Motor Securities expects the number of departures to recover to at least 2.5 million, exceeding a 40% recovery rate. Although the recovery of package demand is slower compared to the recovery rate of departures, it is expected to approach the departure recovery rate with some time lag.

However, the possibility of liquidity risk is considered low. This is because operating losses have decreased due to the recovery in travel demand. Hana Tour has been supplying liquidity through the sale of tangible assets and a rights offering over the past year. At the end of the second quarter, net cash was 151.3 billion KRW, and the consolidated net loss for the third quarter was 22.2 billion KRW. Hyundai Motor Securities concluded that even if losses do not decrease in the current situation, Hana Tour has secured liquidity to sustain operations for about two years. With confirmed recovery in travel demand, operating losses are expected to continue decreasing each quarter, making liquidity risk practically limited.

Hyun-Yong Kim, a researcher at Hyundai Motor Securities, analyzed, "Compared to the recovery in sales, profit improvement is slow, so it is expected to take more than six months until a performance turnaround." He added, "The current stock price is considered overvalued with a price-to-earnings ratio (PER) of 42 times based on 2024 earnings, assuming industry normalization."